Actavis buys Forest Laboratories for $25bn

Actavis, the highly acquisitive Dublin-based drugs maker, has agreed to buy the New York-based Forest Laboratories for $25bn.

If completed the acquisition by Actavis would be the biggest pharmaceutical deal since the separation of Abbott Laboratories into two at the beginning of last year in a transaction valued at $64bn.

The cash-and-share agreement values each Forest share at about $89.48 - a 25 per cent per share premium on Forest's closing price on Monday.

The companies said in a joint statement on Tuesday that the combination could realise as much as $1bn in synergies, and they expected a double-digit boost to non-GAAP earnings in 2015 and 2016.

Under the proposed terms of the deal, Forest shareholders will receive 0.3306 of Actavis common stock plus $26.04 in cash. The deal is expected to close in mid-2014, pending approvals.

Forest shares surged 30 per cent at the open of trading in New York to $92.77, triggering speculation that a rival bid may emerge. Actavis shares rose 8 per cent to $207.

Lionel Melka, head of research at Paris-based M&A hedge fund Bernheim, Dreyfus said: "Actavis' offer is a big surprise because the market was expecting AstraZeneca to make an offer."

The tie-up with Actavis would create a combined company with annual sales of about $15bn. Actavis has global headquarters in Dublin and US administrative headquarters in Parsippany, New Jersey. It has commercial operations in some 60 countries.

Actavis grew out of the €4.5bn reverse takeover by Watson of the US in 2012. Previously it had been the target of bids from Valeant and Mylan.

Since then it has steadily grown by acquisition, including last year's $8.5bn agreement to buy Ireland's Warner Chilcott but the Forest purchase is its biggest to date.

It has about 19,000 employees and last year reported revenues of $6bn and adjusted earnings of $1.4bn. Last year Forest's revenues dropped more than a third to $3.1bn and it reported a loss of $45m. It employs 5,500 across its operations.

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One likely beneficiary of the sale to Actavis is Carl Icahn, whose Icahn Associates owns 11.4 per cent of Forest's shares, making it one of the company's largest shareholders.

"This is a huge win for all shareholders of Forest Labs and yet another validation of the activist investment philosophy in general," Mr Icahn said in a statement.

Forest chief executive Brent Saunders will join the Actavis board following the completion of the deal. Mr Saunders took the helm at Forest in October promising deals after replacing octogenarian Howard Solomon, who ran the company for decades.

Last month Forest bought Aptalis, a specialist in treatments for cystic fibrosis and gastrointestinal disorders for $2.9bn from private equity group TPG.

Mr Saunders was previously chief executive of Bausch & Lomb and previously worked at Schering-Plough, which was bought by Merck & Co in 2009.

Greenhill advised Actavis on the deal, while Forest was advised by JPMorgan.

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